The world’s anti-money laundering (AML) regime is evolving at a rapid pace in the fight against financial crime. A Refinitiv webinar has examined an important year for AML regulation, as well as the technology helping to streamline compliance.
- A Refinitiv webinar has taken a closer look at evolving AML regulation in 2020, including the EU’s 5th and 6th Anti-Money Laundering Directives.
- An intelligent, industry-wide response to financial crime is among the recommendations of the European Banking Federation, with co-operation among all stakeholders.
- Technology is helping to achieve compliance with evolving AML regulation algorithms run on ultimate data to simplify sanctions screening.
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Financial crime remains a global challenge. While the impact of such crime extends far beyond the financial, it is nonetheless worth noting that, in the private sector, almost US$3trillion every year is either lost to or spent fighting financial crime.
Against a backdrop of such significant statistics, Refinitiv, in partnership with the World Economic Forum and Europol, launched The Global Coalition to Fight Financial Crime in 2018 as part of a wider international effort to tackle corruption.
The coalition’s overarching purpose is to mitigate the global phenomenon of financial crime by identifying key weaknesses in the current system; advocating tangible reforms at political and policy level; and enhancing the effectiveness of the global AML regime.
Aurelija Balčiūnė, Senior Associate at Cobalt, Roger Kaiser, Senior Policy Advisor at the European Banking Federation, Ntombi Ngema, Executive Head, Group Sanctions Desk at The Standard Bank Group, together with moderator Sylwia Wolos, Risk Solutions Consultant — Enhanced Due Diligence at Refinitiv, discussed the latest developments in AML regulation.
The fight against money laundering
Looking specifically at the EU, regulations such as the 5th Anti-Money Laundering Directive (5th AMLD) and 6th Anti-Money Laundering Directive (6th AMLD) are providing renewed impetus to financial ecosystem players to identify and mitigate financial crime at every opportunity.
For example, the 5th AMLD has a strong focus on ultimate beneficial ownership (UBO), including, inter alia, that UBO national registers must be inter-connected at an EU level in order to facilitate cooperation and the exchange of information between member state authorities.
The 6th AMLD reinforces the 4th AMLD by defining the minimum rules for the criminal offences that are to be considered by member states as predicate offences and extending criminal liability to legal entities for money laundering.
One significant new legislative step made in the 5th AMLD is in the treatment of virtual currencies, including the introduction of a legal definition for cryptocurrency.
Moreover, cryptocurrencies and cryptocurrency exchanges are to be considered ‘obliged entities’ and face the same CFT/AML regulations applied to financial institutions (FIs) under the 4th AMLD.
Watch: EU Fifth AML Directive compliance for Cryptocurrency sector
This important topic was also included in the Financial Action Task Force’s latest AML debate at its Plenary meeting in February 2020, where understanding and leveraging the use of digital identity and mitigating the money laundering and terrorist financing risks of virtual assets were discussed.
Evolving AML regulation in 2020
The 5th AMLD had an implementation date of 10 January 2020, while 6th AMLD is to take effect on 3 December 2020. It is worth noting that the COVID-19 crisis may affect this.
Many countries have already taken steps to transpose the requirements of both directives into national law, but vary in their stages of implementation:
- Looking at 5th AMLD, the EU portal notes that some member states have taken measures to transpose 5th AMLD. However, it is still not clear whether 5th AMLD has been fully transposed into national laws.
- UBO registers are not functioning in some countries, such as Lithuania and UK, due to a lack of funding, technical barriers, and the sheer volume of data (in the UK the number of registrable trusts might be as high as two million).
- Turning to the 6th AMLD, the EU portal records that only the Czech Republic, France, Croatia, and Romania have indicated that they have taken measures to implement the 6th AMLD, while Germany has already drafted a new bill to transpose.
- The 6th AMLD will not apply to Denmark, nor the UK or Ireland, unless the latter two decide otherwise. Ireland has decided that it will opt in, whereas the UK government has stated that current UK laws are already in line with the requirements of the 6th AMLD.
Importance of banking collaboration
The European Banking Federation (EBF) notes that, since 2016, financial crime (including money laundering) has significantly impacted the financial stability of European banks and FIs and further, that as gatekeepers of the financial system, banks have a crucial role to play in turning the tide against these criminals.
There is consequently a dire need for an intelligent industry-wide response, and EBF has published a blueprint for an effective EU framework to fight money laundering.
This framework’s four key recommendations are to:
- Harmonize the EU regulatory framework.
- Empower relevant EU institutions to fight financial crime.
- Establish a coherent approach for information sharing centered on co-operation among all stakeholders.
- Encourage FIs to ‘be smarter’, and specifically to exploit new technology in the fight against corruption.
Harnessing new technologies
Banks and FIs feeling the pressure of ensuring compliance with evolving regulations can harness new technology to help them stay on the right side of the regulatory curve.
For example, establishing UBO remains a challenging area, as seasoned criminals often hide behind layers of corporate opacity and seek to conceal their true identities.
Watch: Beneficial ownership screening with Refinitiv World-Check One
Technology, however, is stepping up to the plate and offering innovative ways to streamline the work of compliance teams.
Algorithms run on UBO data can significantly simplify complex compliance issues such as sanctions screening, and monitoring activities aimed at pinpointing suspicious activity can be optimized to become more effective and efficient.
As financial criminals become ever-more sophisticated in their operations, technology offers a host of new opportunities for compliance teams to keep a step ahead, and ultimately turn the tide on financial crime.